Charity law: A growth sector

charityThe acknowledged father of modern philanthropy, American Steel magnate Andrew Carnegie, once said: “To die rich is to die disgraced”. By the time of his death in 1919, he had given away $350m (£175m), the equivalent of $4.3bn today. Would you be as generous?

While few of today's high-net-worth donors take quite such an extreme approach, the rapid increase in the assets of the super-rich has led to an upsurge in the philanthropic giving of high-net-worth families. According to Theresa Lloyd, author of Why Rich People Give, the main motivations for charitable giving are: belief in a cause; desire to make a social change; personal development (i.e. using and acquiring skills in a new direction); duty; personal fulfilment; and fun. Her research, based on interviews with 76 UK millionaires with assets of £5m to £100m, also found a strong motivation among immigrant donors to benefit the society that gave them the opportunity to make their fortunes. Many wealthy 'old money' clients also retained a sense of noblesse oblige and a commitment to local causes.

On average, Lloyd's sample gave between five and 10 per cent of their income away with the main beneficiaries of this generosity being organisations in the fields of the arts, culture and social welfare. Least popular were overseas development organisations, environmental causes and religious institutions.

This has not necessarily created a boom for charities. Many wealthy donors have preferred to retain control over how their donations are spent by setting up foundations, rather than donating it to conventional charitable organisations. But when they do donate, they expect much higher levels of accountability and transparency than donors ever did in the past.

The traditional charity and NGO sector in all parts of the world has long been saddled with the reputation of being inefficient and unaccountable and donors are becoming increasingly circumspect about which organisations they are willing to endow. Donor requests for transparency from charities now go well beyond just wanting to know what proportion of their income they spend on administration. 

Charities are also being placed under greater scrutiny by legislation and regulation and are being required to display a greater degree of corporate governance while working harder to justify their charitable status to regulators.

This, combined with the increasing scope and complexity of charities' activities is creating the need for legal advice on issues – for example on employment law, real estate, intellectual property or health and safety regulations – that was once the preserve of commercial organisations. To meet this need, many law firms have expanded their charity law practices and recent years have seen the growth of charity solicitors, consultancies and other organisations such as New Philanthropy Capital in the UK and Geneva Global in the US. Both can vet potential donee organisations and advise on the best methods of achieving philanthropic objectives, while charity information providers such as Guidestar help improve the transparency of the charity sector.